Session-11 to 15

Chapter 6 & 7Strategy Formulation in Industrial

Markets : STP & PLC

Discussion Topics

• Assessing Market Opportunities (STP in B2B Marketing)

• Industrial Product Life Cycle• New Product Development

Know the Procedure followed for segmenting

industrial markets

Identify the Variables (bases) used for segmenting

business markets

Evaluate and select the target market segments

and strategies

Develop effective positioning strategies

PROCEDURE USED IN MARKET SEGMENTATION

The procedure has 3 stepsThe procedure has 3 steps

Conduct marketing researchConduct marketing research to collect data / information on to collect data / information on

existing and potential buyers, and competitorsexisting and potential buyers, and competitors

Carry out data analysisCarry out data analysis by using statistical techniques of by using statistical techniques of

factor and cluster analysis in order to identify different factor and cluster analysis in order to identify different

segmentssegments

ProfileProfile each segment by its characteristics like application each segment by its characteristics like application

(or/use), location, volume of requirements, etc.(or/use), location, volume of requirements, etc.

VARIABLES (BASES) USED IN SEGMENTING INDUSTRIAL (BUSINESS) MARKETS

Industrial market segmentation is done first based on “Macro Industrial market segmentation is done first based on “Macro Variables” , and then subdivided into “Micro Variables”, if Variables” , and then subdivided into “Micro Variables”, if necessary.necessary.

   Macro Variables.Macro Variables. These segmentation variables are These segmentation variables are

identified based on industry/organizational characteristics identified based on industry/organizational characteristics like.like.

(i) Type of industry / Type of customer.(i) Type of industry / Type of customer.

(ii) Company size / Usage rate.(ii) Company size / Usage rate.

(iii) Customer location / Geographical area.(iii) Customer location / Geographical area.

(iv) End-use / Application / Benefits of a product. (iv) End-use / Application / Benefits of a product.

Micro Variables.Micro Variables. Macro segments are further subdivided Macro segments are further subdivided

into micro – segments’, if needed. Micro Variables are into micro – segments’, if needed. Micro Variables are

based on purchasing decisions like based on purchasing decisions like

(a)    Customer interaction needs(a)    Customer interaction needs

(b)   Organizational capabilities (b)   Organizational capabilities

(c)    Purchasing policies(c)    Purchasing policies

(d)   Purchasing criteria(d)   Purchasing criteria

(e)    Personal characteristics(e)    Personal characteristics

Sequential Segmentation Process.Sequential Segmentation Process. Often, business Often, business

marketers use more than one variable to subdivide the marketers use more than one variable to subdivide the

market. market.

EVALUATING MARKET SEGMENTS

Criteria / factors used for evaluating each market segment are :Criteria / factors used for evaluating each market segment are :

(i) Size and Growth (i) Size and Growth

(ii) Profitability Analysis (ii) Profitability Analysis

(iii) Competitive Analysis (iii) Competitive Analysis

(iv) Company Objectives and Resources(iv) Company Objectives and Resources

  

TARGET – MARKET STRATEGIES

Based on above criteria, business marketer selects one or more Based on above criteria, business marketer selects one or more market segments as target segments. Next , the marketers market segments as target segments. Next , the marketers should decide which of the following broad target market should decide which of the following broad target market strategies the company should adoptstrategies the company should adopt

   (a)    Concentrated or Niche marketing strategy(a)    Concentrated or Niche marketing strategy

(b)   Differentiated marketing strategy (b)   Differentiated marketing strategy

(c)    Undifferentiated marketing strategy(c)    Undifferentiated marketing strategy

PROCEDURE FOR DEVELOPING A POSITIONING STRATEGY

Following steps are involved :Following steps are involved :

(i) (i) Identify which attributes / benefitsIdentify which attributes / benefits target target customers customers

consider important while buying a product / service. This consider important while buying a product / service. This information is obtained through a market research study . The information is obtained through a market research study . The variables considered for differentiating a company’s product variables considered for differentiating a company’s product from competing products are.from competing products are.

    (a) Product variables,(a) Product variables,

(b)   Service variables, (b)   Service variables,

(c)   Personal variables, (c)   Personal variables,

(d)   Image variables,(d)   Image variables,

(ii) (ii) Select one or more major benefits (or attributes)Select one or more major benefits (or attributes) to differentiate to differentiate the company from its competitorsthe company from its competitors . (USP) . (USP)

(iii)(iii) Use Perceptual Mapping Technique.Use Perceptual Mapping Technique. To decide To decide

on positioning strategy, this technique is used, on positioning strategy, this technique is used,

after getting customers’ perceptions through after getting customers’ perceptions through

marketing research.marketing research.

(iv) (iv) Communicate Positioning StrategyCommunicate Positioning Strategy. . The firm The firm

should decide and communicate its positioning should decide and communicate its positioning

strategy to target customers, through sales strategy to target customers, through sales

force, advertising in journals, internet, and trade force, advertising in journals, internet, and trade

showsshows

Excellent Product Quality

StrongCustomerService

Low Product Quality

1.0

0.8

0.6

0.4

0.2

.D

.C

.B- 0.2

- 0.4

- 0.6

- 0.8

- 1.0

1.0 0.8 0.6 0.4 0.2 - 0.2 - 0.4 - 0.6 - 0.8 - 1.0

.A1

A

WeakCustomerService

Perceptual MappingTechnique

SUMMARY OF CHAPTER - 6

Procedure used in market segmentation includes (i) Marketing research, (ii) Data analysis (iii) Profiling each segment

Variables used for segmenting industrial markets include macro variables and if needed, micro variables. Sequential segmentation process is often used

Criteria used for evaluating market segments are (i) size and growth , (ii) Profitability (iii) Competitive analysis (iv) Company Objectives and Resources

Target market strategies are (a) Concentrated or Niche marketing, (b) Differentiated marketing, (c) Undifferentiated marketing strategy

Steps used for developing positioning strategy include : (i) Identifying attributes / benefits, (ii) Selecting one / more major benefits, (iii) Using perceptual mapping technique, (iv) Communicating positioning strategy.

CHAPTER 7CHAPTER 7

PRODUCT STRATEGY

AND

NEW PRODUCT DEVELOPMENT

Define an Industrial Product

Understand Changes in the product strategy

Know Product Life cycle (PLC) Theory and its application

Develop Product strategies for existing products

Understand new product development

Know impact of technology and high-tech marketing

Learn Marketing of industrial services

DEFINATION AND MEANING OF AN INDUSTRIAL PRODUCT

Defination Defination : Its is a physical thing as well as a Complex set of : Its is a physical thing as well as a Complex set of

economic, technical, legal and personal relationship between a economic, technical, legal and personal relationship between a

buyer and a seller. buyer and a seller.

Meaning of a Total Product Package :Meaning of a Total Product Package : It includes basic properties It includes basic properties

(with fundamental benefits), enhanced properties (with tangible (with fundamental benefits), enhanced properties (with tangible

benefits), and augmented properties (with intangible benefits).benefits), and augmented properties (with intangible benefits).

In a competitive market,In a competitive market, business marketers must understand business marketers must understand

target customers’ perceptions of a total product package and offer target customers’ perceptions of a total product package and offer

the same better than competitors.the same better than competitors.

CHANGES IN PRODUCT STRATEGYCHANGES IN PRODUCT STRATEGY

Business marketers must understand that a product Business marketers must understand that a product

strategy is dynamic and flexible.strategy is dynamic and flexible.

It changes due to changes inIt changes due to changes in

(i) Customer needs(i) Customer needs

(ii)  Technology(ii)  Technology

(iii) Government Policies / Laws(iii) Government Policies / Laws

(iv) Product Life – Cycle(iv) Product Life – Cycle

A General Model of Product Life – Cycle (PLC)

Rupees

IndustrySales

IndustryProfits

Maturity DeclineGrowthIntroduction

APPLICATION OF PRODUCT LIFE – CYCLE THEORY TO MARKETING STRATEGY

Introduction StageIntroduction Stage : : Marketing Strategy should focus on Marketing Strategy should focus on market development for slowly accepted products. For market development for slowly accepted products. For rapidly accepted products, a competitive strategy rapidly accepted products, a competitive strategy (Skimming pricing or Competitive pricing or Superior quality (Skimming pricing or Competitive pricing or Superior quality product or Basic properties) should be evolved.product or Basic properties) should be evolved.

  

Growth StageGrowth Stage : :To take advantage of high growth of sales To take advantage of high growth of sales and profits, the marketing strategy should concentrate on (i) and profits, the marketing strategy should concentrate on (i) Improving product design or adding product features (ii) Improving product design or adding product features (ii) Improving distribution and (iii) Reducing price, as increased Improving distribution and (iii) Reducing price, as increased sales and production reduce the costs.sales and production reduce the costs.

Maturity StageMaturity Stage As competition increases and profits As competition increases and profits

decline, marketing strategy should concentrate on (i) cutting decline, marketing strategy should concentrate on (i) cutting

costs, (ii) keeping existing customers satisfied (iii) entering costs, (ii) keeping existing customers satisfied (iii) entering

new markets. (iv) modify product, thru’ improvements in new markets. (iv) modify product, thru’ improvements in

quality / features / style.quality / features / style.

Decline StageDecline Stage Since both sales and profits decline, Since both sales and profits decline,

marketing strategy should focus on marketing strategy should focus on (i) substantial (i) substantial

reduction in costs, (ii) develop a substitute product, (iii) reduction in costs, (ii) develop a substitute product, (iii)

withdraw the product slowly from the market.withdraw the product slowly from the market.

PRODUCT STRATEGIES FOR EXISTING PRODUCTS

Business marketers should take the following steps :Business marketers should take the following steps :

Evaluate the performance of existing products by using Evaluate the performance of existing products by using

““product evaluation matrixproduct evaluation matrix””

Examine the relative strengths and weaknesses of the Examine the relative strengths and weaknesses of the

company’s products by using “ company’s products by using “ perceptual mapping” perceptual mapping”

techniquetechnique

Decide the product strategies, based on above analysisDecide the product strategies, based on above analysis

PERFORMANCE EVALUATION OF EXISTING PRODUCTS

Example : A material handling Co.Example : A material handling Co. (i) Product = P (Pallet Truck)(i) Product = P (Pallet Truck)

Last 3 year’s average performance figures areLast 3 year’s average performance figures are• Industry sales growth = 25%, Company sales growth = Industry sales growth = 25%, Company sales growth =

30%30%• Market Share = 30% (Dominant) , Profitability = As per Market Share = 30% (Dominant) , Profitability = As per

TargetTarget

(ii) Product = S (Stackers)(ii) Product = S (Stackers)• Industry Sales growth = 16% (Stable) ; Company Sales Industry Sales growth = 16% (Stable) ; Company Sales

Growth = 15% (Stable)Growth = 15% (Stable)• Market Share = 12% (Average) ; Profitability = Below Market Share = 12% (Average) ; Profitability = Below

TargetTarget

Product Evaluation MatrixProduct Evaluation Matrix

Company Sales Decline Stable Growth

ProfitabilityIndustrySales

MarketShare

BelowTarget

Target AboveTarget

BelowTarget

BelowTarget

Target TargetAboveTarget

AboveTarget

Growth

Dominant

Average

Marginal

Stable

Decline

Dominant

Dominant

Average

Average

Marginal

Marginal

P

S

PERCEPTUAL MAPPING TECHNIQUEPERCEPTUAL MAPPING TECHNIQUE

HighQuality

High Price

Low Price

LowQuality

* *AA1

B

C

Firm A’s product quality is perceived to be “average” by Firm A’s product quality is perceived to be “average” by

customers, compared to its competitors B & C. Firm A should try customers, compared to its competitors B & C. Firm A should try

to move to a new position of superior quality at a reasonable to move to a new position of superior quality at a reasonable

(average) price to improve its profitability.(average) price to improve its profitability.

DECIDE PRODUCT STRATEGIESDECIDE PRODUCT STRATEGIES

(USE BCG Matrix – it can help your decision making)

(i)   Maintain / Continue the product and/or its marketing (i)   Maintain / Continue the product and/or its marketing strategystrategy

(ii)(ii) Modify the product and/or change marketing strategyModify the product and/or change marketing strategy

(iii)  Drop / eliminate the product(iii)  Drop / eliminate the product

(iv)  Add new product(iv)  Add new product

CLASSIFICATION OF NEW PRODUCTSCLASSIFICATION OF NEW PRODUCTS

(i)   Products that are new to the world & innovative(i)   Products that are new to the world & innovative

(ii)  Products that are new to the company, but not new to the world(ii)  Products that are new to the company, but not new to the world

(iii) Improvements / Revision to the existing products(iii) Improvements / Revision to the existing products

(iv) Addition to the existing products (iv) Addition to the existing products

(v)  Repositioning existing products to new market segments(v)  Repositioning existing products to new market segments

(vi) Products with substantial cost reductions without reduction in (vi) Products with substantial cost reductions without reduction in

performanceperformance

  

NEW PRODUCT DEVELOPMENT PROCESSNEW PRODUCT DEVELOPMENT PROCESS

It consists of 7 Stages :It consists of 7 Stages :

(i) Idea generation, (ii) Idea Screening, (iii) Concept development and testing, (i) Idea generation, (ii) Idea Screening, (iii) Concept development and testing,

(iv) Business analysis, (v) Product development, (vi) Market testing, & (vii) (iv) Business analysis, (v) Product development, (vi) Market testing, & (vii)

CommercializationCommercialization

IMPACT OF TECHNOLOGYIMPACT OF TECHNOLOGY

Technological innovations create new products / services that are new to

the world. Examples of these innovations, called break through

technology are :

(i)  (i)  Technological inventions of 1940s of vacuum tube and amplifier Technological inventions of 1940s of vacuum tube and amplifier

circuit created new products / services like radio, wireless telegraphy, circuit created new products / services like radio, wireless telegraphy,

and telephone serviceand telephone service

(ii)(ii) Technological inventions of 1950s & 70s of transistor, integrated Technological inventions of 1950s & 70s of transistor, integrated

circuit (IC), microprocessors have applications in new products like TV circuit (IC), microprocessors have applications in new products like TV

sets, movie Cameras, Computers, Calculators, Mobile phones, Printers sets, movie Cameras, Computers, Calculators, Mobile phones, Printers

etc.etc.

(iii)(iii) Digital revolution of information technology and the internet Digital revolution of information technology and the internet

have improved company and consumer capabilitieshave improved company and consumer capabilities

TYPES OF MARKETING SITUATIONS

BetterMousetrapMarketing

High-techMarketing

High-fashionMarketing

Low-techMarketing

High

Low

Low

Market

High

Uncertainty

TechnologicalUncertainty

MODIFIED TECHNOLOGY ADOPTION LIFE CYCLEMODIFIED TECHNOLOGY ADOPTION LIFE CYCLE

This is suited to high–tech marketing This is suited to high–tech marketing

Time of Adoption of Innovations

Deep Gap

Innovators

2½%

13½%

EarlyAdopters

34%34%

16%Laggards

Early Majority

Late Majority

HIGH – TECH MARKETING STRATEGYHIGH – TECH MARKETING STRATEGY

Target a niche marketTarget a niche market

Plan whole product propertiesPlan whole product properties

Develop partnershipsDevelop partnerships

Unique positioning strategyUnique positioning strategy

Effective Communication StrategyEffective Communication Strategy

Multi – Channel distribution strategyMulti – Channel distribution strategy

Skimming pricing strategySkimming pricing strategy

Marketing of Industrial Services Marketing of Industrial Services

Classifications of Industrial Services Classifications of Industrial Services

Materials

Components

(Steel, Ball Bearings)

Personal

Computers

Hotels

for

Conferences

Good

Transportation

Pure

Tangible

ProductMajor

Product,

Minor

Service

Equal

Product

&

Service

Major

Service,

Minor

Product

Pure

intangible

service

Legal

Unique Characteristics of services and Unique Characteristics of services and

marketing Implications.marketing Implications.

  Characteristics Marketing Implications Examples

1. Intangibility (cannot be seen / felt, before buying)

!!

Buyers see evidence of service qualitySellers tangibilise the intangible

! Management Consultancy & EDPs.

2. Inseparability (Production & consumption at the same time)

!

!

Effective interaction depend on service providers.Requires effective recruiting and training of service providers.

! Repairs to machines & Courier service.

3. Variability (Service quality varies)

!!

Uniform quality is difficultFocus on quality & automation

! Management education & marketing research.

4. Perishability (Cannot be stored) !

!Demand fluctuates.Use methods to match demand &

capacity.

! Airlines seats & Warehouse space.

5. Non-ownership (Buyer uses a service, but cannot own it)

! Advantages of non-ownership :reduction in costs & flexibility

! Hotel and car rental services.

SUMMARY OF CHAPTER - 7

PRODUCT STRATEGYS & NEW PRODUCTS DEVELOPMENTPRODUCT STRATEGYS & NEW PRODUCTS DEVELOPMENT

Industrial Product is a physical thing and also a complex set of economic,

technical, legal and personal relationship between a buyer and a Seller

Product Strategies are changed due to changes in customers needs,

technology, government policies or laws, and product life – cycle

Product life cycle (PLC) concept is used to develop marketing strategies

at different stages of PLC

Product strategies for existing products are developed by (i) evaluating

the performance of existing products, using “product evaluation matrix ,”

(ii) Studying the strengths and weaknesses of existing products, using

“perceptual mapping” technique.